Q4 2024 Simmons First National Corp Earnings Call
Speaker Change: Good morning and welcome to the Simmons First National Corporation Fourth Quarter Earnings Conference Call.
All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Good morning and welcome to Simmons First National Corporation's fourth quarter 2024 earnings call. Joining me today are several members of our executive management team, including our Chairman and CEO, George Makris, President Jay Brogdon, and CFO, Daniel Hopps.
Speaker Change: Today's call will be in a Q&A format. Before we begin, I would like to remind you that our fourth quarter earnings materials, including the earnings release and presentation deck, are available on our website at SimmonsBank.com under the Investor Relations tab.
Speaker Change: During today's call, we will make forward-looking statements about our future plans, goals, expectations, estimates,
Speaker Change: Projections and Outlook, including, among others, our Outlook regarding future economic conditions, interest rates, lending and deposit activity, credit quality, liquidity, and net interest margin.
Speaker Change: These statements involve risk and uncertainties, and you should therefore not place undue reliance on any forward-looking statements, as actual results could differ materially from those expressed in or implied by the forward-looking statements due to a variety of factors.
Speaker Change: Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8K yesterday and our Form 10K for the year ended December 31st, 2023, including the risk factors contained in that Form 10K.
Speaker Change: Finally, in this presentation, we will discuss certain non-GAAP financial metrics we believe provide useful information to investors.
Operator, we are ready to begin the Q&A session.
Speaker Change: We will now begin the question and answer session. To ask a question you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Woody Lay with KDW. Please go ahead.
Hey, good morning, guys.
Good morning.
Speaker Change: Wanted to start on the NII guide and was hoping you could just walk through any major assumptions that are based into that. I know you have the loan growth guide, but was just curious sort about the puts and the takes behind the low end of the range versus the high end of the range.
Speaker Change: Yeah, I'll jump in on that. Woody, good morning. And Daniel may have some comments as well here. But I think when I think about the NII Guide, the first thing I'd start with is our outlook, even going back to, I think, prior quarters and activities throughout the fourth quarter even.
Speaker Change: We've really been pointing toward our ability, our belief, that we could cross over a 3% net interest margin in the back half of the year this year.
Speaker Change: Obviously, we were more optimistic about that if you go back to maybe even like October when the forwards looked very different at that time than they do today, but we still believe that that is within the range of expectations.
Speaker Change: We had a really good quarter this quarter, honestly our launching off point.
Speaker Change: at the beginning of the year is a little better than we thought it was going to be in terms of our original forecasting for the fourth quarter. And we can talk about that some on the call today to the extent there are questions there. But I think as we look to 2025, I still really feel confident in our ability to continue to see NIM expansion.
Speaker Change: Obviously, you asked about the puts and takes to the low and high end of the range. You know, we remain a bit liability sensitive here, a fair amount liability sensitive. So, any changes in the Fed's actions or the forwards would impact outcomes within that range.
Speaker Change: And then I think just the growth outlook on both sides of the balance sheet.
Speaker Change: We've been more optimistic, certainly, today as we think about loan growth. At the same time, that's still conversations and voiceover, optimism in conversations among our bankers and our clients.
Speaker Change: But we've got to see that kind of convert into the pipeline and pull through the pipeline. And it's a bit early to see that optimism reading through. But we do see some green shoots there. And then on the deposit side.
Speaker Change: You know, our focus will continue to very much be to grow the core customer base.
Speaker Change: and simultaneously shrink the wholesale funding that's on the balance sheet. And so I think the growth side of that equation will obviously have an impact on where we would be in the range on the guide there. Daniel, anything you'd add to that? Yeah, I would add an important thing to note is that our guide is based on the forwards, which was the 1-13, January 13th forwards.
Speaker Change: and that had our first full rate cut by October of 25.
Speaker Change: So if you think about, you know, the low end of the range versus the high end of the range, if that rate cut happened sooner, then we'd probably be at the high end of that range and maybe some opportunity. And if we didn't get a rate cut at all, you know, we still feel pretty good that we could be at that low end of that range.
That's how I would tell you to think about that.
Speaker Change: Got it. Yeah, that could be here. And then a follow-up on the loan growth.
Speaker Change: I would consider as sort of a normalized growth rate for y'all. Is it all related to customer demand or is part of it related to y'all being a little more disciplined in order to run off higher costing deposits?
Speaker Change: This comment applies both to the loans and the deposits. We're going to maintain discipline.
Speaker Change: always have on soundness and increasingly, too, on the profitability side.
Speaker Change: improved levels of profitability in terms of returns on invested capital.
Speaker Change: Yeah, makes sense. And last for me, I mean, just given the balance sheet should remain relatively stable, I would expect capital to grow pretty nicely throughout 2025. How do you view your excess capital position and are there opportunities to deploy some capital in the year ahead?
Speaker Change: Yeah, so let me make an attempt at just kind of thinking about the answer to that in terms of how we evaluate our priorities around capital, Woody.
Speaker Change: I don't think you'll hear anything new here, but our number one priority around capital continues to be, you know, organic growth initiatives, to your point.
Speaker Change: You know, that growth is really kind of within the mix of the balance sheet, etc. And so we should be able to continue to grow capital from here on that asset base.
Speaker Change: I would include within kind of organic balance sheet initiatives. We continue to also evaluate, you know, balance sheet restructure opportunities. You've seen us do that in the past. We did one most recently in the third quarter of last year. So we'll continue to evaluate those. And the market, I think, will continue to give us some opportunities.
Speaker Change: to evaluate that. So that would be, you know, top priorities around our use of capital. Obviously, our dividend is a priority. And then from there, we'll continue to maintain, you know, an authorized share buyback.
Speaker Change: You know, we have that in place. We'll continue to evaluate that, but, you know, share buybacks or other external priorities around capital would fall behind those first couple of priorities that we outlined there.
Speaker Change: All right, that's all for me. Thanks for taking my questions.
Thank you.
Matt Olney: The next question comes from Matt Olney with Stevens. Please go ahead.
Matt Olney: Hey, thanks. Good morning. I want to go back to the margin discussion and it sounds like that fourth quarter margin at 287 was a little bit above your expectations. Just any color on that comment?
Speaker Change: I'll give a couple of remarks. I know Daniel will have some things to say here too, but really I think
Speaker Change: Even just thinking about our forecasting for the fourth quarter, and I don't want to apologize for this at all, but we outperformed our expectations both on the loan pricing and the deposit pricing side in the fourth quarter.
Speaker Change: You know, we expected maybe a little more pressure on loan yields than what we saw. And so we were pleased with our discipline and ability to kind of fend off and, at least for now, lag.
Speaker Change: some of the downward movement by the Fed on the asset side.
Speaker Change: and then, you know, conversely on the deposit side, sort of the double benefit was, and Matt, you've heard us talk about this.
Speaker Change: previously, but we did a lot of work going back to last spring and especially over the summer around evaluating the elasticity of our customer base. We were sort of doing, you know, control testing across markets.
Speaker Change: to, you know, see where we felt like the elasticity points were across different types of customers, different types of products.
Speaker Change: maybe outperforming our beta assumptions on the deposit side. And so I think, you know, the good news, as I said earlier, is that that allowed us to maybe
Speaker Change: have a better launch point in 2025 than where our original expectations were. It doesn't really change the shape of what we're expecting in terms of
Speaker Change: you know, NIM expansion throughout 2025. We talked earlier about some of the dependencies there, but we did see some relative outperformance in the fourth quarter for some of those reasons. Daniel, again, anything you want to add? Maybe just a couple of finer points around your commentary there.
Daniel Hopps: If you look at our NIM walk forward in the IP, you'll see that the majority of our benefit and outperformance to our model came from our funding cost benefit. Our funding cost was about 24 basis points.
Daniel Hopps: lower than the second quarter, and that drove about 22 basis points of the NIM impact.
Daniel Hopps: So if you look at our deposit costs, we're down 19 basis points in the third quarter. I think it's even a little bit more impressive if you go back to the third quarter where we were flat at 279 from Q2 to Q3.
Daniel Hopps: While I think we were the only peer in our peer group that didn't increase our deposit cost over that time period so our starting point was was
Speaker Change: strong to Jay's comments around pulling forward the lag. We effectively eliminated a lag which typically is about, you know, three to three to six months when at the change of a cycle, so
That really is what drove a lot of our benefit.
Speaker Change: in the fourth quarter out the four-mayor model and then on the loan yield side.
You know, we were down 12 basis points.
and you think about that between variable and fixed.
Speaker Change: Our variable rate, loan yields, portfolio yields were down about 40 basis points, but the fixed rate loans repricing was up 7 basis points.
Speaker Change: that that tailwind that we've been talking about for several quarters now around our fixed rate loans repricing higher They repriced higher in the fourth quarter by about 200 basis points
Speaker Change: Those two things kind of outperformed where we thought, and so we're in a really good spot going into the first quarter.
Speaker Change: Okay, appreciate that commentary and Daniel, you kind of led me into that. My next question around the loan pricing of that fixed rate book, you've got some great disclosures on that slide 15 around the $2.4 billion of cash flows during 2025.
Matt Olney: increase that you just mentioned a few minutes ago. Is that a reasonable number to assume, at least in the near term, as far as some of these renewals?
Matt Olney: Yeah, in terms of the spreading across the the time frame, I think it's probably fair I don't have it in front of me, but I think that's probably a fair assumption. I know it's going to continue to tailwind
Matt Olney: of that fixed-rate book repricing is going to continue for some time into 2026. So that's going to continue to be a benefit for us. And that 200 basis point spread, I'd have to look at the
Matt Olney: The the our modeling on that, but I think that's probably a fair way to think about it I think I'd add you know. I don't disagree. I'd maybe just add
Matt Olney: A little bit of market color, Matt, to maybe influence the thought process there. And I'd also point you to the loan pipeline on slot 19 in the materials where you can see both the pipeline as well as our rate ready to close trends.
Matt Olney: And, you know, so I think the 200-basis point spread is certainly fair in the immediate term. You know, what I'm already seeing, what we're already seeing in the marketplace,
Matt Olney: you know, opportunities in our pipeline. Those are still, you know, that really high quality credit is, you know, still really, really coveted in the marketplace.
Matt Olney: The activity, as I mentioned earlier, has some green shoots to it, some optimism to it.
Matt Olney: But we're not just seeing tremendous volume in the market come to bear yet, and therefore, when you see good opportunities, right now we're seeing a lot of price competition on those.
Matt Olney: Can we maintain 200 basis points spread for 12 months this year?
Matt Olney: you know, to flex in relationships matters and get paid, and we're going to maintain those priorities around soundness, profitability, and growth.
Matt Olney: and that will play out through the year this year. And there's probably some color there to lead through into the deposit side as well. You've got pricing competition both on the loan side and the deposit side that's still pretty intense out there in this market despite some easing by the Fed.
Matt Olney: I'll make one more comment about NIM and kind of looking forward, you know, the 13 basis points improvement that we got in the fourth quarter, we talked about the lag and bringing that forward.
Matt Olney: We've got a really good jumping off point for the first quarter But I wouldn't expect the same pace of increase that we got in the fourth quarter to occur in the first quarter Because of bringing forward a lot of that benefit
from eliminating that lag.
Matt Olney: We do expect some expansion in the first quarter, but not at the level that we saw in the fourth quarter. To accentuate that point, if we stacked two 13-basis point quarters together, we'd be at a 3% NEM at the start of the year and the first quarter of the year. Our expectation is that, as we've been saying all along, that's a run rate we believe we can get to in the back half of the year. I think that's a good way to summarize that point.
Okay, guys. Thanks for the commentary.
Thank you, Matt.
Speaker Change: The next question comes from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Good morning David. Good morning.
Speaker Change: you know, the industry loan growth starts to accelerate like we've talked about.
Yeah, I think...
Speaker Change: David, on the deposit side, it's still, to state the obvious, it's still very, very competitive out there.
The flip side of that is...
Speaker Change: As we talked about earlier, to kind of reduce some of the lags, became a little more confident in some of our beta assumptions.
Speaker Change: around the core customer base, and so I'm not aware of anything within our administered rate portfolio where we've made moves and sort of regretted those moves, you know, thus far. So that piece is encouraging.
The competition piece is...
Speaker Change: doesn't influence how we think about sort of our outlook for 2025. That's just, that's just the environment we're operating in today. And David, I might add, you know, always
Speaker Change: rate and in balance growth, there's a trade-off there and you're trying to maximize
Speaker Change: the right point there. And we probably have more optimization than our peers in terms of our.
Speaker Change: We're trying to find that right balance. I think we've done a really good job of that. Maybe just a point around that.
Speaker Change: in the fourth quarter on our, I forget what slide it is, but where we do our walk forward on our deposits, you'll notice that.
Customer time deposits declined
Speaker Change: and IB deposits increased. And so if you dig into that, and you look at the customer closure CDs in the fourth quarter, where relationship really pulls through is, of those CDs that closed in the fourth quarter,
If we were able to retain on the relationship side.
Speaker Change: Those in other words those that had more than just a CD with us
Speaker Change: We were able to retain over 75% of those balances, either in lower cost CDs, in other words, they closed the CD they were in and went into a lower cost CD.
with our team, and that's really showing through there.
relationship we were able to retain.
25% of those balances.
Speaker Change: And so, you know, that's the rate side of the house, but then if you just look at the
Speaker Change: We're really encouraged in the fourth quarter with consumer. Consumer, we saw growth both on an ending and average basis.
Speaker Change: for the first time in a long time, and you know, even in all balanced tiers. So we do an analysis that looks at
Speaker Change: you know, five or six different balance tiers, and we saw growth in every single one of those tiers in the fourth quarter, which is
Speaker Change: Really encouraging to us as you generally see seasonal growth and consumer in that fourth quarter So we're encouraged by that and then one final point on that is that
Speaker Change: for the year, we grew consumer checking accounts by one and a half percent. And, you know, that is the lifeblood and the core engine of a consumer bank. And so we're leaning into that, continue to expect that going forward.
That's that's great color
Speaker Change: focused on like the seasonally stronger quarters with ag increasing and maybe some you know slower growth in the first half of the year as demand starts to improve and at what point do you just do you start getting more competitive on the pricing front in order to drive growth?
Speaker Change: Well, again, we'll be competitive. We're not trying to be out of market from a pricing point of view, even today. I would just say that we're maintaining discipline from a pricing point of view, and that includes...
Speaker Change: You know, relationship views around profitability, not just, you know, single transaction views. It's comprehensive of all of those things, David. So I'm going to be real clear there. We're seeking to grow the loan portfolio.
Speaker Change: and we're just seeking to get really good risk-adjusted returns on those investments. The way I think about the pipeline today, we're seeing good opportunities, really, as we go into 2025.
Speaker Change: You know, it's pretty well diversified. It's diversified within the commercial real estate areas of the bank, and it's diversified in other commercial areas.
where we're seeing some good opportunities.
Speaker Change: You know, so that part feels pretty healthy and broad-based to me. It's also somewhat broad-based geographically. I can't, you know, certainly markets like, you know, DFW and Nashville continue to be
Speaker Change: You know pretty positive markets for us on a relative basis within our entire footprint But but really I'm pleased with the level of productivity. We're seeing You know throughout the footprint
Speaker Change: in terms of loan growth opportunities. I do, as I sit here today, this is about as confident as predicting what the Fed is going to do, but you know, I
Speaker Change: potentially see an uptick in volume as we move through the year this year. I mentioned earlier in some of the opening comments just around the puts and takes for the NII outlook when we talked about volume. We see some green shoots today, we see more positive conversations.
Speaker Change: You know, commercial balance sheets are very, very healthy. You know, that's both good and bad. That's good from an overall credit point of view when we look at our customer base.
Speaker Change: But that can also mute demand a little bit. When you've got a really, really healthy balance sheet, that may not lead to an onslaught of borrowing need.
Speaker Change: For example, some CRE that goes to the permanent market, just exactly the way that it's supposed to. And so a lot of what we see in the pipeline will fill up that good, healthy activity, and then we'll be seeking to grow on top of that and think we'll be able to do that.
That's great. That's great
Speaker Change: And last one for me, just touching on credit, you know, it seems like things are kind of just normalizing, right? Obviously some weakness in areas like the consumer, but you know, looking broadly, it just kind of feels like a normalization and that's kind of what your guidance implies.
Speaker Change: I'm just kind of curious, what are you seeing on the credit front, what are you watching closely? Is there anything, you know, notable or just kind of curious what you're seeing on the credit front broadly?
Speaker Change: Yeah, thanks. Nothing that I would call notable that's new. I think normalization is still exactly the right term in terms of how we think about what's happening in the portfolio.
Speaker Change: You know, getting somewhat irrelevant to talk about, but as we've said before, you know, your best loans in those portfolios are the ones that are paying off and the ones that will continue to have to deal with and could see some charge-offs in are the ones that remain there. So the runoff portfolio, small balance, but that's one we keep a close eye on.
Speaker Change: And then outside of that, I mean, in our portfolio, it's really just kind of a handful of credits. It's nothing new. It's nothing new that's migrated in. So we feel like we've got a really tight box around, you know, the credits and the portfolios that we have to talk about and keep a close eye on.
Speaker Change: You know, when I think about commercial real estate broadly, our performance, and we have some, you know, some detailed breakdowns in terms of the makeup of those portfolios, the levels of past dues, non-accruals, etc.
Speaker Change: We're not seeing anything that is causing us any kind of new concerns in those portfolios.
Speaker Change: Outside of that, the good news is we're just not seeing a lot of changes on the credit front. We even had some good trends within classifieds and criticized in the quarter. So I feel like the credit picture is really kind of business as usual at this point.
Terrific, thanks everybody.
Thank you, David.
Speaker Change: The next question comes from Gary Tenor with D.A. Davidson. Please go ahead.
Thanks. Good morning, guys.
Speaker Change: direction you see for 2025? What's what's the the right environment do you think you need to get the ROA back over 1%? What's the kind of optimal setup for you there and kind of visibility around that?
Speaker Change: I think first and foremost, the steepening of the yield curve is a really good thing for the whole industry, right? And so that is...
Speaker Change: an environment that I think, you know, all of us need in the industry. The, you know, we've talked before, Gary, you know, I feel pretty good about, you know, just in kind of, let's think down a couple of KPIs starting at the top. I feel pretty good about...
Speaker Change: something in the area of a 350 NEM, kind of being an operating NEM for us, you know, plus or minus a range around that 350 area. That fits well within our risk appetite. That would, you know, fit well within what we would kind of think of as a more optimized balance sheet.
Speaker Change: I think, you know, when, you know, we're still going to be, you know, we're proud to have a
Speaker Change: a retail community bank out there. So that, you know, you take a 350 NIM and our business model and the granularity of that model, that still probably spells out something in the low 50s top efficiency ratio.
Speaker Change: Hard to get a whole lot lower than that on a retail base like we have. And I think that would result in something in the area of a 125 ROA. And we have a real continuous improvement around all of those things to continue to press those metrics.
Speaker Change: better and forward. You know, to get there, you know, we've got to we've got to chew through.
Speaker Change: you know, some of the duration overhang on some of the assets on the balance sheet.
Speaker Change: So there's a rate and time element of that. Every time we talk about timeline, you know, you have to talk about what's the rate environment in that timeline.
Speaker Change: And then what opportunities will we have from a balance sheet restructure or otherwise to help accelerate those timelines. So that's how we think about our long-range targets and, you know, the scenarios or the paths to getting there.
Speaker Change: Okay, I appreciate that. My other questions were answered. Thank you.
Speaker Change: The next question comes from Steven Skouten with Piper Sandler. Please go ahead.
Steven Skouten: Yeah, thanks, everyone. Jay, I know you kind of touched on this at a high level saying you guys would still evaluate potential.
Steven Skouten: ...securities restructuring, but can you talk about maybe what dynamics would compel you potentially to do that? Obviously with rates a little higher we think the math...
Steven Skouten: you know, maybe slightly more compelling now, and maybe just in particular around the Health First Health Maturity book and how you guys think about that.
Steven Skouten: You mentioned the Held to Maturity portfolio. In a scenario where we did a larger top transaction like that, the sensitivity of the balance sheet changes dramatically. And so we evaluate the ALM aspects of the balance sheet, kind of pre- and pro-forma. Obviously, we evaluate capital and earnings. You've heard me say this before, Stephen, that's probably our leading evaluation when we're looking at balance sheet restructures.
Steven Skouten: you know, capital and earnings. One of the things that I like to look at is
Steven Skouten: in one of those, you know, in any kind of scenario, big or small kind of trade within the balance sheet restructure, I like to look out over, you know, the next three, four, five years.
Speaker Change: Steven, can you still hear us? We're getting some background noise here. Drew, can you help with that?
Steven Skouten: Yes, now I can hear you, sir. Just one moment, please.
Please go ahead, sir.
Steven Skouten: It just dropped out there. Yeah, hey Steven, can you still hear us?
Steven Skouten: So I'll just finish my comment there to the extent, I'm not sure where we are in terms of the operator and the line here, but let me just finish my comment.
Steven Skouten: for those that are on the call. One of the things that we focus on that I think is particularly important is looking out three or four years in the context of any kind of trade.
Steven Skouten: look out over a period of time and look at different rate scenarios. Shock, for example, down rates 100, 200, 300 basis points.
and what is our earnings outlook.
Steven Skouten: on the current balance sheet over that period of time versus
Steven Skouten: the proforma for a trade? Are we making more money or less money in different rate environments? And so, we really, as you've heard me say before, we're very scenario rich. We run a lot of scenarios around a lot of these things. And obviously, if we think that there's an economically viable path for a pull forward of those timelines, we're going to want to take advantage of that.
Steven Skouten: Okay, at this time this concludes our question and answer session. I would like to turn the conference back over to George Makris for any closing remarks.
George Makris: Thank you very much. And not surprisingly, we've outlined a pretty conservative outlook for 2025. But I will say that we're cautiously optimistic that a favorable business environment will help us exceed our expectations.
So, stay tuned.
Before we drop off today, I've got some...
Special recognition I'd like to make. We had
Speaker Change: Five key executives retire at the end of 2024, Bob Fellman, who is our CEO, Steve Massinelli.
Speaker Change: who is our Chief Administrative Officer, Steve Wade, who had served as our Chief Credit Officer, Johnny McCaleb, who had served as our Chief Audit Executive, and Pat Neely, who ran Bank Operations.
Speaker Change: All retired at the end of 2024. That's a lot of talent to lose at one time, but I'll tell you they're
Speaker Change: replacements are just as good with long runways and we're excited about that. These five folks
Speaker Change: played a pivotal role over the last 10 years as we grew. And if you can think about how they were able to manage our day to day operation, but also improve
Speaker Change: our operations, our risk management, oversee our credit operation as we integrated 13 banks. It was a monumental task. And I can't thank these guys enough for what they've meant for Simmons Bank. So.
Speaker Change: Guys, we'll miss you, but thank you very much. You've left the company in a good way.
Speaker Change: That's really all we have for today. Thank you for joining us and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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